Fedex (NYSE:FDX) has indeed had a rough week with a shocking plunge of -42.07% from its 52-week high on last week’s shocking advance notice. Nonetheless, FDX’s CEO has pledged to embark on aggressive cost savings initiatives worth up to $4 billion through fiscal 2025, with an additional $2 billion in benefits from its “Network 2.0” optimization strategy, driven by a 6.9% increase in base fees starting in 2023 is supported. This explains Mr. Markets promising assessments for the next few years.
The big man will also be watching United Parcel Service, Inc. very closely (NYSE:UPS) October performance given relatively upbeat consensus FQ3’22 estimates. Meanwhile, both stocks are likely to continue falling as the macro economy and stock market continue to digest the post-Fed hawkish comments.
As far as we know, the recession may already be in our midst as the S&P 500 Index is already reporting a tragic -21.65% YTD plunge. Oops.
How does FDX’s performance compare to UPS’s?
In FQ1’23, FDX reported revenues of $23.20bn and operating margins of 5.1%, up 5.45%, although recording a further decline of -2.5 percentage points yoy. Of course, falling demand due to the deteriorating macroeconomics has impacted profitability, with net income of $0.88 billion and a net income margin of 3.8% in the most recent quarter. These point to a year-on-year decline of -20.72% or -1.3 percentage points.
Meanwhile, UPS outperformed itself in the second quarter of 2022 with exemplary revenue of $24.77 billion and operating margins of 15.6%, up 5.7%, or 0.3 percentage points year over year. Based on the massive margin differences, it is also immediately apparent which company is more profitable. UPS reported an average of 13.6% operating margins and 10.9% net profit margins in the last twelve months (LTM), in contrast to FDX’s 6.4% and 4.1%, respectively.
It’s no wonder, then, that UPS stock has performed over the past few years with a 5-year total price return of 65.9% vs. FDX’s -24.8%, and a 10-year return of 213.7% vs. 102.7 % has continued to outperform .
Additionally, consensus estimates remain cautiously optimistic on UPS’s performance on the upcoming conference call, with forecasted Q3 2222 revenues of $24.38 billion and operating margins of 12.83%, up 5.17% %, although there is a decrease of -1.17 percentage points year-on-year. respectively. Of course, this also points to a notable decline of -1.57% and -2.77 percentage points QoQ after factoring in the impact of rising inflation and lower volume compared to FDX’s recent -4.87% QoQ revenue decline .
However, with projected net income of $2.52 billion and a net income margin of 10.33% for the upcoming quarter, UPS investors needn’t worry for now. These figures still represent massive improvements of 44% and 0.73 percentage points respectively from the FQ3’19 level, compared to FDX’s 17.33% increase, although FDX was up -0.6 percentage points in FQ1’23 declined from FQ1’20 levels. We will see.
Of course, FDX reported lower free cash flow (FCF) generation of $0.32 billion and FCF margin of 1.4% in Q1 2023, down -37.25% and -0.9 respectively percentage points year-on-year. Otherwise, a tragic decline of -71.37% and -3.2 percentage points QoQ as the economic downturn decimated consumer demand. Fortunately, its $6.85 billion in cash and equivalents has remained stable so far and should remain so in light of aggressive cost-cutting strategies ahead.
On the other hand, UPS had reported FCF generation for the second quarter of 2022 of USD 2.97 billion and a FCF margin of 12%, corresponding to a decrease of -3.7% and -1.2 percentage points in the YoY comparison suggesting hyper growth since reopening. Consensus estimates have also downgraded forecast FCF generation to $1.96 billion and a FCF margin of 8.1% in Q3’22, indicating a decline of -34% and -3.9 percentage points QoQ respectively. Elsewhere, a moderation of -20.64% or -2.3 percentage points year-on-year, also indicating a slowdown in e-commerce growth amid economic uncertainty.
Meanwhile, given the stellar $11.74bn reported in FQ2’22, we still expect ample cash and equivalents for UPS’s upcoming report. This will preserve its liquidity over the coming quarters with potentially reduced shipping volumes.
Mr. Market downgraded their forward execution bearishly
UPS is expected to report an adj in the next few years. revenue and adj. Net income growth at a CAGR of 7.54% and 21.32% between FY2019 and FY2024. Notably, these figures reflect analysts’ downgrade of estimates by -2.05% since our previous analysis in July 2022. Meanwhile, FDX is expected to report revenue and net income growth at a CAGR of 7.90% and 36.47%, respectively, over the same period of time.
Nonetheless, it’s impressive that consensus estimates continue to call for UPS to see strong growth in its net income margins from 6% in fiscal 2019 to 13.2% in fiscal 2021, and finally 10.95% through fiscal 2024. Assuming FDX’s aggressive actions work well, the company is also expected to improve its profitability, from 1.9% in FY2020 to 4.1% in FY2022 and finally to 5.99% in FY2025.
On the other hand, it’s also evident that FDX will face massive headwinds over the next few quarters as the company struggles to cut costs while raising interest rates at a time of deteriorating macroeconomic conditions. These were painfully evident in the massive -24.56% plunge in share prices over the past week, which similarly impacted UPS’s -9.27%, further exacerbated by the bearish market due to the Fed’s continued rate hikes so far became.
In the meantime, we encourage you to read our previous article on UPS, which will help you better understand its position and market opportunity.
- United Parcel Service: Still no margin of safety – volatility ahead
So, is UPS and FDX stock a buy?Sell or hold?
FDX 5Y EV/Sales and P/E Ratings
FDX is currently trading at 0.73x EV/NTM turnover and 9.79x NTM P/E, down from its 5-year moving average of 1.04x and 13.28x, respectively. The stock is also trading at $154.54, down -42.07% from its 52-week high of $266.79 and nearing its 52-week low of $150.34.
UPS 5Y EV/Sales and P/E Ratings
UPS is trading at 1.53x EV/NTM revenue and 13.06x NTM P/E, down from the 5-year median of 1.71x and 16.53x, respectively. The stock is also trading at $167.86, down -28.17% from its 52-week high of $233.72 and nearing its 52-week low of $165.34. Consensus estimates on the outlook for UPS and FDX remain bullish given their target prices of $203.70 and $237.63 respectively, up 21.35% and 53.77% from current prices.
UPS & FDX 5J Stock Price
It’s painfully obvious that both stocks have since suffered, resulting in UPS losing all gains over the past year and FDX posting up to two years of pandemic gains. Depending on UPS’s upcoming October conference call, we could then likely see further bottoming due to the sustained elevated inflation rate of 8.3% in August 2022.
As a result, we encourage investors to wait for a deeper retracement and likely more clarity on the UPS’s performance before adding anything during the turbulent market. More penalties could follow depending on the CPI results in September.